Article ID Journal Published Year Pages File Type
5066236 European Economic Review 2017 27 Pages PDF
Abstract

Changes in the extent of multi-market contact (MMC) between firms often affect market outcomes - quantities and prices. We show that a strategic but purely competitive effect of changes in MMC can change the quantity provided in a market by a firm by as much as 50%, and the prices a firm sets by as much as 20%. This may have important welfare implications, specifically with regards to horizontal mergers. Studying mergers that span several markets, we show that a myopic merger policy may thwart a surplus-increasing merger wave. The analysis does not rely on any tacit or explicit collusive behavior by the firms.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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